Charlotte H. Mason • William D. Perreault, Jr. 3rd edition 1

The Marketing Game is Integrative … and Covers All Aspects of the Marketing Strategy Planning Process Narrowing down to focused strategy with quantitative and qualitative screening criteria Customers Needs and other Segmenting Dimensions Targeting & Segmentation Product Price S. W. O. T. Target Market Company Mission, Objectives, & Resources Positioning & Differentiation Promotion Place Competitors Current & Prospective External Market Environment Technology Political & Legal Social & Cultural Economic 2

You take over marketing management responsibilities for your firm. Overview You take over marketing management responsibilities for your firm. Must satisfy customers and earn profits Focus is on marketing strategy planning. Requires integration of all strategy decisions. Requires attention to competitive environment. Considers short term and long term perspectives. Features ongoing, rapid feedback. 3

Analysis of market situation/opportunities Planning and budgeting The Process Analysis of market situation/opportunities Planning and budgeting Make marketing plan DECISIONS!!! Submit plan decisions The marketing game! simulation Company reports returned to firms Next Decision period 4

Technological environment Industry Environment Market growth Technological environment No major innovations expected Yearly revision cycle Competitive environment Type of competition depends on firms’ decisions 5

Six Key Product-Market Segments Harried Assistants Home Users High-tech Managers Modern Students Professional Creators Concerned Parents Segments have different needs, preferences, situations, sizes, growth rates. 6

Past Sales By Market Segment For Voice Recognition Device 7

For Voice Recognition Device (UNIT SALES) 8

Distribution Channels Firm 1 Firm 2 Firm 3 Firm 4 Firms reach customers through full-service dealers and Internet/mail-order discount dealers. Channel 1 Traditional Dealers Channel 2 Discount Dealers Harried Assistants Home Users High-tech Managers Modern Students Professional Creators Concerned Parents Different segments have different shopping preferences. 9

Product 1: Voice Recognition Device (VRD) Number of Special Commands (5-20) Key Product Features Error Protection (1-10) Ability to Customize (1-10) 10

R&D for Product Modifications: Computing Costs Feature Cost to Decrease Cost to Increase Special Commands (5-20) $0 $8,000*(change)2 Error Protection (1-10) $5,000*(change)2 Ease of Learning (1-10) $3,000*change $3,000*(change)2 Example Feature Last period’s product This period’s product Change Cost to Change Special Commands 6 8 +2 $8,000*2*2=$32,000 Error Protection 4 3 -1 $0 Ease of Learning 5 $3,000*2*2=$12,000 Total modification costs: $44,000 Note: R&D for product changes is more expensive if you have to make big changes in a short period of time… 11

Product 2: Digital Vocal Communicator (DVC) Level 3 Product 2: Digital Vocal Communicator (DVC) Number of Tasks (1-10) Key Product Features Similarity of Commands (1-10) Ease of Learning (1-10) 12

Types of Advertising Pioneering—works to build PRIMARY demand for the product category (not a specific brand) Useful EARLY in the life cycle of a product when there is still opportunity to stimulate market growth Makes the most sense for a firm that has a large overall share of the market Will benefit most from any increase in the size of the potential market 13

Direct competitive—attempts to create immediate brand purchase Types of Advertising Direct competitive—attempts to create immediate brand purchase Useful when facing immediate competition to attempt to win market share from competition Most effective when the product is, in fact, superior to the competitor’s for that target market 14

Indirect competitive—tries to create brand purchases in the future Types of Advertising Indirect competitive—tries to create brand purchases in the future Useful when management expects greater competition in the future and is willing to trade off some current advertising effect for future benefits Most useful when there is substantial future growth in the market 15

Reminder—Efficient if the brand is well known Types of Advertising Reminder—Efficient if the brand is well known Only useful once consumers are already familiar with the brand Usually seen in the mature stage of the product life cycle 16

Types of Advertising Corporate (Institutional)—Can be useful for firms with more than one product Promotes the overall firm rather than a specific product 17

Marketing Responsibilities (Level 2) PRODUCT Features (and R&D for product modifications) PRICE Wholesale price in each channel PLACE Distribution intensity in each channel PROMOTION -Advertising $ Spending AND Type -Personal selling Number of sales reps in each channel Percent non-selling time Commission rate -Sales promotion $ Spending per Channel CUSTOMER SERVICE $ Spending MARKET RESEARCH 7 Reports May be Purchased Demand Forecast/ Production order Number of Units 18

Forecasting Production Order - Total Market Price Supply Demand 83,800 Quantity 19

Forecasting Market DEMAND Supply Tastes (Advertising) Price of Product Price of Other Products Supply Cost of Production Price of Product 20

Forecasting Production Order - Total Market Price New Supply Demand shifts up with ”good advertising” P2 P1 Demand 83,800 = Q1 ? = Q2 Quantity Result: More product sold and at a higher price 21

Results of “Bad” Forecasts Actual Production is automatically adjusted by up to 20% to meet higher or lower demand. Underestimate demand (and so request too little production) results in lost sales and profits Other firms may benefit 22

Results of “Bad” Forecasts Overestimate demand (request too much production) you have excess inventory Excess is transferred to an overseas subsidiary Revenue received for transferred inventory is only 85% of the product’s UNIT COST. The 15% difference (loss) shows up as a “Transfer Charge” on your next financial summary. 23

Expanded Marketing Responsibilities (Level 3) 2 PRODUCTs Features (and R&D for product modifications) PRICE Wholesale price in each channel for each product PLACE Distribution intensity by channel, product PROMOTION -Advertising $ Spending for each product Type for each product -Personal selling Number of sales reps in each channel Percent non-selling time in each channel Commission rate -Sales promotion $ Spending per channel, product CUSTOMER SERVICE $ Spending MARKET RESEARCH 7 reports may be purchased Demand forecast/ production order Number of units for each product 24

Response Functions and Marketing Spending Sales Marketing Spending Threshold Level Saturation Spending too little may have little effect, but spending too much just increases costs and reduces profit. 25

Marketing Budget Items (Level 2 and 3) R&D product modification costs Sales force salaries and severance pay Advertising expense Customer service expense Sales Promotion Expense Market research reports expense BUDGET FOR FIRST PERIOD: $984k DO NOT ACCIDENTLY EXCEED YOUR BUDGET— Check YOUR Pro Forma 26

Initial discretionary budget of $1,000,000 Unspent money carries to future periods and earns interest 6% interest. Spend it when you need it “When it’s gone, it’s gone.” 27

All firms start with a budget of $984,000 BUDGET FOR NEXT PERIOD All firms start with a budget of $984,000 The budget for the next period always depends on the firm’s net profit contribution Higher net profit results in a higher budget But not equal to your profits Firms with low profits or net losses still get a budget There is a minimum amount the president will provide to enable continued operation 28

Computing Prices Computing Retail Prices from Wholesale Prices: Expected Retail Price = Wholesale price/(1-% Markup) Example: Wholesale price = $105 Channel 1 Retail Price = ($105/(1-.50)) = $210 Channel 2 Retail Price = ($105)/(1-.35) = $161.54 Computing Wholesale Prices from Desired Retail Prices: Wholesale Price = Retail Price (1 - % Markup) Example: Desired Retail Price = $190 Channel 1 Wholesale Price = $190/(1-.50) = $95.00 Channel 2 Wholesale Price = $190/(1-.35) = $123.50 29

Retail Prices Charged Final Consumers The retail price set by a dealer depends on: The wholesale price in the dealer’s channel. The customary markup used in the channel. Channel 1 = 50%, Channel 2 = 35% The portion of any sales promotion “deals” that the dealer passes along to consumers as a price reduction. 30

Setting A “Good” Wholesale Price Costs are a basic consideration Should cover the unit cost of the product (given its features). Must cover the production costs plus sales commissions Should leave enough to cover R&D, Marketing Research, Advertising, Customer Service, and contribute to profit PAY ATTENTION TO YOUR PROFIT!! 31

Setting A “Good” Wholesale Price Should result in a retail price that will appeal to target consumers. Retail price is wholesale price plus dealer markups Varies by Channel Sales promotions (especially in Channel 2) are often passed along to the consumer as a price discount DID I MENTION TO PAY ATTENTION TO YOUR PROFIT?!! 32

Estimate competitor’s net contribution Competitor Analysis Estimate competitor’s net contribution Analyze past strategies & likely changes. Evaluate positioning and target segments. Firms 1 2 3 4 1 2 3 4 5 6 X ? X X Segments ? X ? 33

Industry Sales Report (Free) Brand Unit Sales Share (units) $ Sales (retail) Firm 1 25,151 .250 $4,292,964 Firm 2 Firm 3 Firm 4 Total 100,604 $17,171,854 Channel Dollars Sales 1 56,296 $10,696.240 2 44,308 $6,475,614 34

Product Features and Prices Report (Free) Brand of VRD Firm 1 Firm 2 Firm 3 Firm 4 Error protect- ion 3 Ease of learning 3 Retail price channel 1 $190.00 Retail price channel 2 $146.15 Special commands 8 35

Market Activity Report (Level 2) Adv. Dollars Adv. Type Sales Promotion Channel 1 Channel 2 No. Sales Reps Commission Customer Service Firm 1 $250,000 $0 10 5% $92,500 Firm 2 $250,000 $0 10 5% $92,500 Firm 3 $250,000 $0 10 5% $92,500 Firm 4 $250,000 $0 10 5% $92,500 36

Market Research Reports (Level 2) 1. Market share by segment (all brands) 2. Market share by channel (all brands) 3. Consumer preference study 4. Marketing effectiveness report 5. Sales by segment by channel (own brand) 6. Consumer shopping habits study 7. Product positioning report Note: In level 3 separate reports are available for each product, except for the consumer shopping habits study 37

Easy to use for preparing and evaluating plans, managing reports TMGPlan Software View, print, and manage password protected reports Select directory Enter Plan Decisions Evaluate spending and profit forecast 38

Submitting Marketing Plans Submitting marketing plans decisions Policy on paper form Policy on electronic file Each firm has a distinct industry and firm identification Need to keep it straight! Passwords and the TMGPlan software Remember password used to create Plan It is case sensitive (upper and lower case make a difference) Best to stick to one password! 39

Overview of Market Research Reports Market share by segment (all brands) Market share by channel (all brands) Consumer preference study Marketing effectiveness report Sales by segment by channel (own brand) Consumer shopping habits study Product positioning report (Level 2 & 3) 40

Market Share by Segment Report ($15,000) Brand Firm 1 Firm 2 Firm 3 Firm 4 Total Sales (units) 1 0.250 20,028 2 0.250 15,084 3 0.250 25,104 4 0.250 10,240 5 0.250 22,056 6 0.250 8,092 Who’s selling to whom? Who’s buying what? What is each firm achieving? Which segments are buying? 41

Market Share by Channel Report ($12,000) Brand Firm 1 Firm 2 Firm 3 Firm 4 Total Sales (units) Channel 1 0.250 56,296 Channel 2 0.250 44,308 What’s selling where? Who’s buying what? 42

Consumer Preference Study ($30,000) Segment Students Home Assistants Creators Managers Parents Special Commands 10-13 7-10 12-15 13-16 5-8 Error Protection 2-4 6-8 Ease of Learning 1-3 6-8 4-6 2-4 7-9 Price Range low high What kind of product would a segment prefer? What reference price seems typical for the segment? How are segments similar and different? 43

Marketing Effectiveness Report ($25,000) Competitors with lower Index Competitors with equal or higher Index 3 Brand Awareness Customer Service Consumer Group Rating Industry Average Rating Channel 1: Sales Rep Workload Dealer Satisfaction Channel Strength (“Push”) Channel 2: Index 0.550 100% 1.00 .500 44

Detailed Sales Analysis by Segment by Channel ($15,000) Firm Channel 1 Channel 2 1 896 5,269 2 1,109 3,337 3 5,602 1,396 4 1,808 1,196 5 4,363 1,865 6 1,086 1,074 Unit sales by segment and channel Are you reaching your target? 45

Customer Shopping Habits ($7,000) Segment Students Home Assistants Creators Managers Parents Percent of Shopping in Channel 1 ? Percent of Shopping in Channel 2 ? Who shops where? How do shopping patterns match distribution focus? 46

Product Positioning Report ($30,000) Segment Brand Firm 1 Firm 2 Firm 3 Firm 4 1 ? 2 ? 3 ? 4 ? 5 ? 6 ? Which brands are closest to which segments? Which segments have no close brands? 47

Analyze the reports as you would analyze a case. Recommendations Analyze the reports as you would analyze a case. Make intentional changes. Find a balance in marketing research spending; NOT ALL reports are valuable every time Be integrative--think carefully about how each decision impacts each of the others. Have some fun! 48

10% A 20% A- 30% B+ 40% B 50% B- 60% C+ 70% C 71% to 100% C- The End Result: Your Grade on the Simulation is based on PROFITS in the LAST FOUR PERIODS of the simulation. Teams within the following percentages of the winner's TOTAL PROFITS will receive the grades shown. Within (% of Total Profits of winning team): 10% A 20% A- 30% B+ 40% B 50% B- 60% C+ 70% C 71% to 100% C- 49 The Marketing Game